The 2nd India-ASEAN business fair opens in Delhi on 18 December, with the aim of enhancing economic linkages. The India-ASEAN bilateral trade stands relatively low at $68 billion, but grew rapidly by $24 billion in 2010-11 on the back of strong exports from India. Carrying that momentum is crucial not just for business, but for the larger geopolitical interests of both India and the Asian regional bloc.
For ASEAN is at a critical phase: it faces a classic collaboration dilemma with China, the regional hegemon with growing heft.
China is the dominant trading partner with all ASEAN countries, and has disproportionate economic leverage over the poorer nations – Cambodia, Myanmar and Laos. Cambodia has received more than $10 billion in aid, soft loans and investment from Beijing over the last 18 years. Last year, two-way trade between Laos and China shot up by 40 percent; Chinese banks offered $3 billion in loans and promised to build a $7 billion high-speed railway network. In Myanmar, China accounts for nearly 35% of all foreign investments. Consequently, China creates lucrative incentives for the poorer nations to defect from the ASEAN consensus if it does not suit Beijing’s interests. The current matrix of enticements effectively gives China a veto over many ASEAN decisions through just these three poorer nations.
The most recent instance was ASEAN’s recent failure to collectively take on Beijing over the disputed South China Sea islands at the ASEAN summit in November. While Philippines and Vietnam lobbied for collective action, ASEAN’s current chair Cambodia broke ranks to say that the disputes should be solved bilaterally. In the end, the ten ASEAN nations were not able to reach a consensus and for the first time in its history, ASEAN failed to come up with a joint statement and played into Beijing’s hands.
This is not good for ASEAN’s coherence, and is causing the bloc to falter. How ASEAN looks to change this matrix will have long-term impact not only in the region, but also on China’s ambitions of eventually replacing the United States as the leader in global affairs. As East Asian countries fight over resources of the South China Sea, as the US wakes up to the new Chinese muscle and turns eastwards, the stage is set for a protracted battle of attrition.
ASEAN, for its own unity, should look at diversifying its aid and investment dependence with other big regional economies like India and Australia. Compared to the mighty US and China which are in a fierce competitive engagement with each other, India and Australia are two relatively low-risk countries for ASEAN to do business with. Through regional forums like the East Asia Summit, India, Australia and ASEAN should look at building a regional order of economic interdependence that can expand into security cooperation.
The US pivot to Asia gives ASEAN nations an additional opportunity to hedge their economic bets. The US, India and Australia together can particularly focus on deepening economic and trade linkages with the poorest ASEAN nations which are most vulnerable to China’s influence – Cambodia, Laos and Myanmar.
In the long term ASEAN should work towards closing the wealth gap between rich and poor ASEAN members. Compared to Singapore and Brunei which at per capita GDP of nearly $50,000 are able to hold their own against China, the three smaller countries with per capita GDPs of under $3,000, can’t. Till the breach narrows, the poorer nations, driven by short-term incentives, will often side with Beijing, undermining overall ASEAN interests.
It is instructive to remember that China’s move for greater involvement with ASEAN came in the wake of the 1989 Tiananmen Square incident, driven by the urge to consolidate on the idea of Asian values as espoused by the likes of Singapore’s Lee Kwan Yew and Malaysia’s Mahatir Mohammad. But bilateralism remained the principle thrust of Beijing’s foreign policy in South East Asia, even as it joined several multi-sector and multi-level cooperation mechanisms driven by ASEAN. In the new century China’s multilateral diplomacy was driven by the urge to change the rules of the game to suit its own interests, which they are doing by driving a wedge between ASEAN nations.
Following the summit in Cambodia, Chinese Foreign Ministry Spokesman Qin Gang said an ASEAN Declaration of Conduct over the dispute could help ease tensions. If the rules are clearly spelt out in the Declaration of Conduct, and there are sufficient penalties for breaking the rules, this could be an effective way of mitigating the cooperation dilemma between the countries. But China will undoubtedly try to maneuver any such declaration through its surrogates in ASEAN.
As this report by the Centre for Strategic and International Studies points out, when great powers slip up, China is quick to seize the opportunity to advance its territorial interests in its neighborhood. When American forces withdrew from Vietnam in the mid-1970s, the Chinese grabbed the Paracel Islands from Saigon. Similarly, when the Soviet Union withdrew from Vietnam’s Cam Ranh Bay and the United States terminated its base agreement with the Philippines, China quietly occupied Mischief Reef to the dismay of Manila.
Now as China perceives an American decline, it is once again asserting itself in Asia. Any sign of ASEAN leaders being overeager in inviting American force to the region will surely result in a push back from Beijing. Some of this is already in evidence – while China talks of peaceful negotiations of the South China Sea dispute, it is simultaneously quietly building a disproportionate military presence around the archipelago. With the leadership transition in China, the PLA is in a heightened state of readiness to assert itself and prove that the new leaders are firmly in control of the region.
In comparison, ASEAN looks a house divided over crucial strategic issues.
At this crucial juncture in their collective history, and in its own long-term interest, ASEAN must find ways to collaborate and innovate to deal with its giant neighbor.
Sambuddha Mitra Mustafi is a Senior Researcher at Gateway House: Indian Council on Global Relations.
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